Shakti Pumps (India) Limited (NSE:SHAKTIPUMP) Might Not Be As Mispriced As It Looks

When close to half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider Shakti Pumps (India) Limited (NSE:SHAKTIPUMP) as an attractive investment with its 22.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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The earnings growth achieved at Shakti Pumps (India) over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Shakti Pumps (India)

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shakti Pumps (India)'s earnings, revenue and cash flow.

Is There Any Growth For Shakti Pumps (India)?

The only time you'd be truly comfortable seeing a P/E as low as Shakti Pumps (India)'s is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 17% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 658% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Shakti Pumps (India)'s P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Shakti Pumps (India)'s P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Shakti Pumps (India) currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about this 1 warning sign we've spotted with Shakti Pumps (India).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.